Once a person reaches the age of 65 years, they may enroll in Medicare. If they or their spouse do not have 40 work credits, however, they cannot receive premium-free Part A. That said, they can get Part A benefits if they pay the monthly premiums.
In many instances, people may wish to sign up for Part A when they become eligible for Medicare, even if they do not qualify for premium-free Part A. If someone delays signing up, they may have to pay a late enrollment penalty.
This article describes Medicare work credits and provides an overview of Medicare. It also discusses what people can do if they do not have enough work credits, examines costs, and explains when a person may wish to delay enrolling in parts A and B.
We may use a few terms in this piece that can be helpful to understand when selecting the best insurance plan:
- Deductible: This is an annual amount that a person must spend out of pocket within a certain time period before an insurer starts to fund their treatments.
- Coinsurance: This is a percentage of a treatment cost that a person will need to self-fund. For Medicare Part B, this comes to 20%.
- Copayment: This is a fixed dollar amount that an insured person pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.
Before someone can qualify for Medicare or Social Security benefits, they must have 40 work credits.
People earn credits, or qualifying quarters, as they work and pay Social Security taxes on their income. A person can earn up to four credits per year, so it will take 10 years to earn the required 40.
Qualifying quarters worked are also called credits. For each quarter a person worked, they earned a credit. To qualify for premium-free Medicare Part A, an individual must have worked 40 quarters in their lifetime.
Earnings necessary to receive one credit may vary from year to year. In 2021, for example, a person must earn $1,470 to get one credit and $5,880 to get four credits for the year.
Medicare is the federal health insurance program for people aged 65 years and older, as well as some younger individuals with certain disabilities or conditions.
The Medicare parts include:
- Original Medicare is Part A, or hospitalization insurance, and Part B, or medical insurance. Part A covers hospital stays, nursing home stays, and hospice care, while Part B covers doctor visits, laboratory tests, and medical equipment.
- Part C, or Medicare Advantage, is the alternative to original Medicare. It provides parts A and B benefits. Most plans also include prescription drug coverage, and many offer extra perks, such as dental care.
- Part D is prescription drug coverage. It is available to people enrolled in original Medicare. Each Part D plan covers at least two medications in the commonly prescribed categories.
- Medigap is Medicare supplement insurance. It is available to people with original Medicare. It pays 50–100% of the parts A and B out-of-pocket costs.
Once a person turns 65 years of age, they can enroll in Medicare even if they do not have the required 40 work credits to receive Social Security benefits. However, there may be additional costs, including Part A premiums.
If someone does not have 40 work credits, the only difference in their Medicare costs involves the Part A premium. All other costs will be identical to those of people who do have 40 work credits.
People with 40 work credits are eligible for premium-free Part A. In 2021, people with fewer than 30 work credits must pay the monthly premium of $471 to receive Part A benefits.
A person with 30–39 work credits must pay a monthly Part A premium of $259.
If a married person does not have the required 40 work credits but their spouse does, the person can get premium-free Part A. This is also the case if their spouse is deceased.
People with 40 work credits can expect the following costs in 2021:
Part A costs in 2021 include:
- a $0 monthly premium
- a $1,484 deductible for each benefit period
- a $0-per-day coinsurance for days 1–60 of each benefit period
- a $371-per-day coinsurance for days 61–90 of each benefit period
Part B costs in 2021 include:
- a $148.50 monthly premium
- a $203 annual deductible
- a 20% coinsurance
Part C costs in 2021 include the Part B monthly premium of $148.50, plus deductibles, copays, coinsurance, and the monthly Medicare Advantage plan premiums.
Part D plan costs for 2021 include deductibles, copays, coinsurance, and monthly premiums. The average monthly premium for Medicare Part D is $33.06.
The only Medigap cost is the premium, which may vary from under $100 to several hundred dollars per month.
A person can choose to enroll in Medicare Part A and Part B during their initial enrollment period, which is when they first reach the age of 65 years. In many cases, if they do not enroll when they are first eligible, they may incur a late enrollment penalty in the form of higher monthly premiums.
On the other hand, people who work past the age of 65 years and have health insurance with their employer may wonder if they should delay enrolling in parts A and B. The answer may depend on the size of the company that employs them.
Companies with fewer than 20 employees
If a person’s employer has fewer than 20 employees, the Medicare rules about enrollment are different because it is up to the employer to decide if the employee should enroll in original Medicare (parts A and B) when they are first eligible at the age of 65 years.
If a person does enroll in original Medicare, the employer’s health plan becomes the secondary payer because Medicare will settle any medical bills first. The person’s group health insurance only pays for any outstanding services, according to how Medicare works with other types of coverage.
Companies with more than 20 employees
A person who is aged 65 years or older and is working for a company with more than 20 employees may choose whether or not to enroll in original Medicare (parts A and B) when they are first eligible.
There is no Medicare penalty for delaying enrollment, as long as the person is enrolled in their employer’s group health insurance. When the employer-supplied health coverage ends, Medicare offers a special enrollment period.
What about health savings accounts?
If a person enrolled in their employer’s health insurance plan also has a health savings account (HSA), it may influence their decision about when to enroll in original Medicare.
Group health plan with an HSA
Some people who work past the age of 65 years have both group health coverage and an HSA. After they enroll in Medicare, they may no longer contribute to their HSA, so they may choose to delay enrolling in original Medicare until they stop working or until the employer’s health plan is no longer available.
To avoid penalties, the person must then enroll within 8 months of their coverage ending.
Group health plan with no HSA
If a person who is working past the age of 65 years is enrolled in their employer’s health plan but does not have an HSA, they may enroll in premium-free Medicare Part A if they have 40 work credits.
However, they can also choose to delay enrolling in original Medicare until they, or their spouse, lose the group health coverage or stop working. To avoid penalties, they must enroll within 8 months of their coverage ending.
People aged 65 years old are eligible to receive premium-free Medicare Part A if they or their spouse have 40 work credits. This equates to around 10 years of work in which they paid Social Security taxes.
If a person or their spouse has insufficient work credits, they may still get Medicare Part A coverage but will have to pay the monthly premiums, which range from $259 to $471.